Investing is the single best way to increase your money and to grow long-term wealth. However, it’s impossible to predict what the market will do from year to year. That’s why we’ve focused on the thing you have individual control over: how much you save in your IRA.
Most people start saving for retirement around this time. Starting early is wonderful for your long-term financial health and prosperity. Compound interest favors the young. The more time you have to save, the more your interest grows. And the more money you have in retirement.
When you’re just starting out you don’t have to invest the maximum amount every year (though you should if you can). Anything you put away now will help you later. Start by opening an account with $1,000. From there, see if you can add in an additional $2,000 by the end of the year.
If you open an IRA at 25 with $3,000 and max it out from age 26 to age 30, you’ll have deposited $33,000.
By 40, you should be maxing out your IRA each year. By tucking away $6,000 a year, you’re steadily building a comfortable retirement for yourself. At this age, you want to have $80,000 in your IRA, and if you’ve been depositing the max each year, you will actually have deposited $93,000.
Starting at 50, you can contribute an extra $1,000 a year to your IRA. That makes the limit $7,000 a year. This is a big help to those who are on the lower income side of things or those who got started saving late.
By 50, you’ll have deposited $163,000 into your IRA. According to our plan here, you’ve just spent the last two and a half decades maxing out your IRA. This put you in a great spot to retire somewhere in the next 10–20 years.
At this point, you’re in the last two decades of your working years. Hopefully you’ve been able to build a cushion throughout the first half of your career. If you haven’t, you need to start saving now. If you’re just beginning, max out at $7,000 every year to recover some of that lost time.
Throughout their 50s, most people face new financial responsibilities. Children head to college, medical costs might go up, and you might want to pay off a house mortgage before you retire.
So we’ll stick with putting $6,000 a year in your IRA and not the maximum legal contribution of $7,000. Another decade of saving $60,000 puts you at a cool total of $203,000 in your IRA.
Traditional retirement age is 65, but that’s changing. People are living longer than before. And the recession changed the game for millions of people. If you lost money in the recession or were just starting out and worked for low wages, you’ll need to work past 65 to retire comfortably.
In your last few working years, you should up the ante on retirement contributions. Hit that $7,000 from 65 to 68 to give yourself a little extra cushion in your retirement.
By working just a few years more, you have the opportunity to make up some ground you might have lost earlier in your career. By 68, as you wrap up your working years, you should have saved $255,000 in your IRA.